Outright
Commercial Purchases

What is an outright

commercial purchase?

An outright commercial purchase involves acquiring the photovoltaic system by purchasing it with cash, paying a specialized company to assess the property, design a suitable solar power system based on your individual requirements and then also carry out the installation process. The purchaser is then responsible for all ongoing operating, maintenance, repair and replacement costs.

Advantages &

Disadvantages

There are several advantages and disadvantages to purchasing a photovoltaic system outright, for one most of the associated ownership costs are concentrated at the beginning of the systems service life, meaning it may take a few years before you break-even and really start to see the savings. While solar panels are typically rated for a 25 year usage period, this is based on how clean the surface is kept (affecting performance). For a commercial company this requires hiring maintenance personnel to service the system. The commercial solar PV system will also, in the future, require some equipment and parts replacements to ensure the system continues to function and support the generation of electricity. For those companies with experienced solar staff and enough capital an outright purchase can be a viable option, otherwise it is generally recommended that solar as a service may be better suited to achieve the desired results.

The advantage of an outright commercial purchase is getting the lowest long-term ownership cost possible as well as being eligible for clean energy subsidies from the Australian government. These include small-scale technology certificates (STC) or large-scale generation certificates (LGC) and the type of credit is determined by the installed capacity and annual energy output.

What is a Solar Power

Purchase Agreement?

A ‘PPA’ is a financial agreement between a developer and a customer whereby the developer organizes the design, permits, finance and installation of a solar energy system on the customer’s property. The developer owns the system and the host simply buys the energy produced at fixed rate that is generally lower than the local utility retail rate. The lower electricity price serves to offset the customer’s purchase of electricity from the grid while the developer receives income from the sales of electricity as well as any tax credits and other incentives that are a byproduct of the system. PPAs can range from 5 to 25 years and the developer is responsible for the operation and maintenance for the entirety of the agreed upon period. At the end of the contract term, the customer is able to extend the PPA, remove the solar system or buy the solar system from the developer.

Benefits

Zero or minimal upfront costs

Because the developer handles any upfront costs involved with sizing, procuring and installation of the system, the customer is able to get solar and see the savings as soon as the system starts operating. Freeing up cash for other business investments.

Future proofed reduced energy costs

Solar PPAs offer a fixed, predictable electricity cost throughout the whole agreement which can be structured one of two ways. With a fixed escalator plan the price rises and a predetermined rate (often between 2% – 5%), which is lower than the projected utility price increase. With a fixed price plan the cost is maintained resulting in increased savings as the utility prices rise with time. Utility / grid prices may grow faster than the PPA price resulting in increased cost savings over time.

Limited risk

All performance risks are owned by the developer who is responsible for the systems monitoring, maintenance and operating risks.

Availability of tax credits

Developers are in a better position to leverage tax credits to reduce the costs of a solar system, such as Section 48 Investment Tax Credit.

Increase in property value

A solar energy system has in some cases, shown to increase residential property values. The long term nature of PPAs mean they can be transferred with the property allowing the customer a means to invest in their home with little to financial cost.

Zero obligation to purchase

While you are under no obligation to purchase the system at the end of the contract, the opportunity is available allowing you to continue to save on energy bills for the life of the system.

Reduces carbon emissions

Beyond saving money and other benefits, engaging in a PPA positions your company as a leader in climate action and highlights your role in mitigating the environmental impact of your activities.

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